Introduction to the Human Resources Discipline of Ethics and Corporate Social Responsibility and Sustainability

Overview

The ethics and corporate social responsibility discipline deals with organizational and personal values and their expression in business decision-making and behavior. Ethics and sustainability are different but related areas of practice that are gaining in significance for the 21st-century employer. The ethics realm includes voluntarily adopted and mandated business codes of ethics, related legal and regulatory imperatives, corporate governance, whistleblower protections and ethics training. The sustainability field includes traditional corporate philanthropy and volunteerism, but also encompasses broader initiatives that leverage the intersection between business interests and societal good.

Ethics

Ethics is defined as rules of conduct or moral principles that guide individual or group behavior. The focus in business ethics is on awareness of organizational values, guidelines and codes, and behaving within those boundaries when faced with dilemmas in business or professional work. HR professionals are in a strategic position to ensure that their organizations maintain cultures that demand ethical behavior. Many serve as the primary ethics resource in their organizations and are involved in formulating ethics policies. See Practice Makes Proficient: Be an 'Ethical Agent' in the Workplace.

Codes of ethics

Many organizations have voluntarily adopted codes of ethics that describe their general value system, ethical principles and specific ethical rules. Codes of conduct may cover a variety of subjects such as the following:

• Compliance and laws.
• Confidential or proprietary information.
• Conflicts of interest.
• Use of company assets.
• Accepting or providing gifts, gratuities and entertainment.

In addition, some industries have developed their own ethical standards that participating companies subscribe to. For example, during the 1980s executives of major defense contractors created the Defense Industry Initiative on Business Ethics and Conduct, whose principles obligate signatories to do the following:

• Adopt a written code of ethics and conduct.
• Provide employees with orientation and training with respect to the code.
• Provide employees with a mechanism (such as a hotline or helpline) to surface concerns about ethics issues and report suspected wrongdoing regarding corporate compliance with procurement laws and regulations.
• Adopt procedures for voluntary disclosure of violations of federal procurement laws.
• Participate in best-practice forums.
• Show the public their commitment to ethical business practices through the transparency of their activities and programs.

Publicly traded companies subject to the Sarbanes-Oxley Act of 2002 (SOX) must have a code of ethics designed to deter wrongdoing, including a statement promoting financial integrity that clearly applies to senior financial officers. There is no prescribed format for an SOX-compliant code, but it should affirm the organization's commitment to the following:

• Honest and ethical conduct.
• Avoidance of conflicts of interest.
• Full, fair, accurate, timely and understandable financial disclosure in reports and documents.
• Compliance with applicable government laws, rules and regulations.

Legal and Regulatory Issues in Ethics

Corporate ethics has historically been a largely unregulated area, but that is changing. Organizations—particularly publicly traded companies—need to be mindful of certain legal issues and exposures in developing and implementing their ethics policies and practices.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 (SOX) has many provisions that involve or touch on ethics-related policies and practices that HR professionals may administer or influence:

• Section 301: Requires companies to develop a complaint system and an anti-retaliation statement and to communicate these to employees.
• Section 306: Requires companies to notify employees at least 30 days prior to a temporary suspension on stock trading—a blackout period. Section 306 also requires companies to provide executive officers and directors and the Securities and Exchange Commission (SEC) with advance notice of a blackout period, during which officers and directors are prohibited from engaging in transactions involving securities acquired as a result of their employment.
• Section 402: Bans personal loans to executive officers or members of the board of directors. HR-administered programs that may run afoul of Section 402 include split-dollar life insurance policies, in which a company pays premiums for a policy insuring the life of an officer or executive; stock option exercises, which are company extensions of credit for broker-assisted, cashless exercises of stock options; and loans to cover home purchases or college tuition.
• Section 404: Requires U.S. public companies and their independent auditors to show the SEC that their financial numbers are accurate and that they have processes in place to ensure that accuracy. Because the single largest line item for most employers is people-related costs, including salary, benefits, incentives and training, HR executives are squarely in the center of the SOX fray. How an organization arrives at its numbers is becoming nearly as important as the accuracy of the numbers.
• Section 406: Requires companies to have a code of ethics designed to deter wrongdoing, including a statement promoting financial integrity that clearly applies to senior financial officers. See Final Rule: Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002.
• Section 802: Strengthens existing obstruction-of-justice sanctions against people who destroy, alter or falsify documents with the intent to impede or influence an investigation, even if the SOX charges have been settled. This section applies to both publicly traded and privately owned companies.

Section 806: Protects whistle-blowers from retaliation if they speak out against unethical or wrongful actions that could have a negative effect on a company's share value. It applies not only to employees at publicly held companies but also to any organization or individual that works for a publicly held company—including contractors, subcontractors and agents. False Claims Act

The federal False Claims Act permits a person with knowledge of fraud against the United States government, referred to as the "qui tam plaintiff," to file a lawsuit on behalf of the government against the person or business that committed the fraud (the defendant). If the action is successful, the qui tam plaintiff is rewarded with a percentage of the recovery.

In May 2009, President Barack Obama signed the Fraud Enforcement and Recovery Act (FERA), greatly expanding the reach of the False Claims Act—also referred to as the Qui Tam Act—a law that has no cap on damages. FERA makes it easier for False Claims Act claims to be brought against subcontractors, and it extends the act's retaliation protections to independent contractors.

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted on July 21, 2010, includes three sections that add whistleblower protections, and it also amended SOX and the False Claims Act to expand their whistleblower protections.

Section 922 of the Dodd-Frank Act provides monetary awards to individuals whose report of SEC violations leads to recovery of monetary sanctions of $1 million or more. The award is from 10 percent to 30 percent of the sanctions. The section covers not only whistleblowing about companies registered with the SEC as publicly traded companies, but also private equity firms and hedge funds that manage more than $100 million.

The section provides a private cause of action for anyone retaliated against due to whistleblowing to the SEC, with remedies that include double back pay and attorneys' fees. And there is a lengthy statute of limitations under the section—six years. That is far longer than the statute of limitations originally under SOX's whistleblowing provisions, which was 90 days before the Dodd-Frank Act amended SOX to expand its statute of limitations for whistleblowing claims to 180 days. Section 922's protections include whistle-blowers who provide the government with information about a violation of any securities laws, including the Foreign Corrupt Practices Act.

Section 748 also amends the Commodity Exchange Act to prohibit discrimination against an employee for whistleblowing to the Commodity Futures Trading Commission. This section provides a private right of action and has a statute of limitations of two years with the possibility of recovering back pay and reinstatement.

Section 1057 provides protection to anyone for whistleblowing to the Bureau of Consumer Financial Protection, an independent office of the Federal Reserve, established in 2011.

In addition to doubling the statute of limitations for SOX whistleblowing claims, the Dodd-Frank Act amends SOX to clarify that subsidiaries of publicly traded companies are covered by the whistleblowing provisions and that arbitration agreements are unenforceable with regard to SOX claims. The Dodd-Frank Act also amends SOX to allow jury trials for plaintiffs.

Additional whistleblowing protections

The Occupational Safety and Health Administration (OSHA) enforces the whistleblower protection provisions of the Occupational Safety and Health Act and 21 other federal laws. OSHA suggests the following five key elements to creating an effective anti-retaliation program:

1. Management leadership, commitment, and accountability.
2. System for listening to and resolving employees' safety and compliance concerns.
3. System for receiving and responding to reports of retaliation.
4. Anti-retaliation training for employees and managers.
5. Program oversight.

See Recommended Practices for Anti-Retaliation Programs.

Some whistleblower protections are limited to certain classes of workers. Many states have laws specific to health care workers; for example, a Colorado statute protects nurses and other health care workers against retaliation for disclosing patient-safety concerns.

Section 218c(a)(2) of the Affordable Care Act (ACA) prohibits retaliation against employees (or applicants) who have reported violations of the ACA or activity that they reasonably believe to be violations of the ACA.

See Sample whistleblowing policy.

Other laws, regulations and guidelines

Various other federal laws may be brought to bear on an organization with respect to unethical business practices. For example:

• The Foreign Corrupt Practices Act of 1977 (FCPA) prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business.
• Mail and wire fraud statutes, 18 U.S.C. §1341 and §1343.
• The Travel Act, 18 U.S.C. §1952, provides for federal prosecution of violations of state commercial bribery statutes.
• Federal Sentencing Guidelines, particularly §8.B2.1 regarding the components of an effective compliance and ethics program.

Governance

Corporate governance is the system that allocates duties and authority among a company's stockholders, board of directors and management. Recognized principles help guide the advancement of corporate governance as well as the ability of U.S. public corporations to compete in the global marketplace, create jobs and generate economic growth.

In today's competitive business environment, stakeholders are more closely examining how organizations are managed. Whether publicly traded, corporate, nonprofit or privately held, firms are increasingly under the scrutiny of their workforce, shareholders, various stakeholders, the community and the public at large. The trend is reflected in the growing number of rules, mandates and regulations regarding board governance.

Investigating and addressing reports of ethics and compliance misconduct involving top executives can be challenging, particularly when trying to balance fairness, consistency and the appropriate discipline while dealing with legal and public relations issues. Corporate reputation can either rapidly generate or destroy shareholder value. Accordingly, reputational risk management is another aspect of corporate governance coming to the fore. See Alphabet Board Sued Over Claims It Covered Up Senior Execs' Sexual Misconduct.

Training

Ethics training should be an ongoing process. Ethics training programs help employees and managers clarify their own ethical principles and practice self-discipline when confronted with ethical dilemmas. Training has little practical value if it exists only as a one-time event. Ethics training in conjunction with a code of ethics can serve as an organization's guiding framework, especially when it is revisited frequently and employees and management view ethics as an enduring concern.

The challenge lies in committing resources and putting forth the effort needed to make these programs truly effective. More and more companies come to understand the true value of these programs in helping avoid costly investigations and fines. In the short run, though, that argument can be a hard sell.

Successful training may increase the number of reported ethical violations or incidents of noncompliance. Typically, the C-suite wants to know why. The answer is that an uptick in complaints actually indicates that the program is working. A good training program will raise awareness, but it will not immediately change behaviors.

Experts recommend reviewing several training courses to find the best and most engaging programs. Training that does not engage but merely lectures on what ethics and compliance should cover will lose the interest of participants and will not have the desired impact.

Measuring the true value of ethics and compliance training is challenging. Its overall effect, however, goes beyond limiting legal liabilities. It can help shape employee attitude and corporate culture.

Sustainability

Close on the heels of the maturing discipline of business ethics, the related areas of corporate social responsibility (CSR) and sustainability are emerging as business imperatives.

Although CSR is often thought to be a relatively recent movement in the business world, scholars and practitioners say the concept emerged in the 1930s and 1940s—some argue that it was even earlier—and was formalized in 1953 with the publication of Social Responsibilities of the Businessman, a book by U.S. economist Howard Bowen.

HR has a role and responsibilities in this field as well—from yesterday's basic corporate philanthropy to today's initiatives in ethics, diversity, financial transparency, employee relations, supply chain management, governance and community/employee engagement. An HR framework for CSR might include identifying and prioritizing key issues based on core business drivers, identifying opportunities for measurement and evaluation, and recognizing when, where and how to take action.

HR's efforts to develop sustainable business practices can have the positive effect of improving employee morale, increasing employee engagement and productivity, and improving retention by making the organization an employer of choice. Being an ethical, socially responsible company can attract investors, customers and top talent—and help ward off government regulators and environmental and labor activists.

While not limited to environmental issues, the field of business sustainability certainly includes them. "Going green" has become a business strategy requiring focused attention.

An organization's actions in this area must be financially viable, employees must be aligned with the organization's vision of being environmentally responsible, and the organization's core values must reflect its respect for the environment and guide its decisions.

See:

Tips for Making Your Workplace More Sustainable

Chief of ESG: Launching an Office of Sustainability During a Pandemic

What can employers do to encourage environmental sustainability and eco-friendly practices in the workplace?

Volunteerism

Corporate-sponsored volunteerism is a well-established practice. For years, workers have served on boards, volunteered at children's schools and lent support to many community-based projects, often with the support of their employers. But an increasing number of companies now have structured volunteer programs—integrated into core business strategies—that offer more hands-on involvement over a consistent period of time. And while these programs are designed to help the communities they serve, they are now also being used to help employees develop greater understanding, sensitivity and leadership skills.

Sponsorship of volunteer programs is also being recognized as a recruitment strategy. A survey found that nearly two-thirds of the 1,000 18- to 26-year-olds polled would prefer working for employers that allow them to contribute their talent to nonprofit organizations.

Younger-generation employees are not the only ones who become engaged in volunteerism. Mobilizing retirees to support community problem-solving activities that assist the employer in achieving its community affairs and marketing goals can leverage its significant investments in recruiting, training, employee assistance programs, health care, retention programs and leadership development. A number of major employers have created corporate retiree volunteer programs to do just that.

Despite their recognized benefits, employer-sponsored volunteer programs do pose challenges. It can be difficult to measure the extent of an employee's leadership development or to know empirically what the organization has gained through service fellowships, for example. Other issues and possible sticking points include the following:

• Clarifying which volunteer programs are sponsored or funded by the employer and which ones are not.
• Determining whether to support volunteerism during work hours.
• Scheduling volunteer time to not conflict with productivity or with other employees' schedules.
• Limiting eligibility for volunteer time-off to employees who are performing satisfactorily or better.
• Educating managers about their responsibilities with respect to approving and scheduling volunteer time.

There are some risks involved with managing a volunteerism program, and employers should understand fully their obligations under wage and hour laws and nondiscrimination laws, as well as any impact on employee relations.

See Volunteerism Policy.

Other Facets of Ethics and Sustainability

Various other aspects of business ethics and sustainability—often with implications for the HR professional—are emerging and developing in organizations.

Effective practices in ethics and sustainability

Developing exemplary and effective practices in the ethics and sustainability fields may require particularly creative thinking and adaptations. For example:

• In the area of ethics and governance, going beyond the letter of the law may become the norm. Although Sarbanes-Oxley applies only to publicly traded companies, many private companies and some nonprofit boards have adopted its requirements as good business practices.
• Although sustainability is a hot topic for today's business leaders, most companies do not really take sustainability into account when recruiting MBAs. Instead of pigeonholing sustainability as a cost center, organizations need to integrate it into all areas of the business by hiring top MBAs who also have an in-depth understanding of sustainability.

Careers in ethics and sustainability

As more companies embrace ethics and sustainability as business imperatives, they look to human resource executives to play a major role in these initiatives. Careers in these fields will find a new and dynamic frontier that covers varied subject areas—everything from environment, health and safety to overseas bribery, privacy and securities fraud. Opportunities as consultants and vendors also exist.

Global ethics and sustainability

As business expanded to the global arena, it generated the need for consistent ethics policies that transcend borders. A global ethics standard ensures that organizations do not limit themselves to the laws and regulations in the United States while operating overseas. In other words, legal behavior does not always supersede ethical behavior. See Is Your Global Code of Business Ethics Outdated?

Ethics and sustainability metrics

HR professionals are likely to be responsible for producing metrics for the labor and employment dimensions of their organizations' ethics and sustainability initiatives. The growing use of globally accepted guidelines for reporting on sustainability will probably increase organizations' demand for more measures assessing the value of HR activities and spotlight HR management processes in sustainability initiatives.

The most common framework for sustainability reporting comes from the Global Reporting Initiative (GRI), a nonprofit based in the Netherlands. More than 1,500 organizations use the GRI guidelines to produce sustainability reports, and more organizations are beginning to follow suit.

In the ethics area, measurement approaches are also emerging. For example, the Opus College of Business at the University of St. Thomas in Minneapolis established the Self-Assessment and Improvement Process (SAIP), which enables organizations to appraise and enhance their performance on questions of corporate ethics, governance and social responsibility. Another resource is the Ethics Resource Center.

Ethics and sustainability technology issues

Various technologies create ethics and sustainability challenges in organizations, but technology also offers tools for maintaining ethical, sustainable businesses. Problems may include areas such as ethical issues associated with electronic monitoring and privacy. Solutions may include ethics hotlines or online tools for anonymously reporting questionable conduct. See Are Ethics Hotlines Effective?